Helping new entrepreneurs is key to job creation targets

December 01, 2010

By Humphrey Borkum, Chairman of JSE Limited

How quickly we forget. In
October 2008 global banking and financial systems collapsed as a result of the
US mortgage crisis. Stock exchanges around the world lived through terrifying
times of financial paralysis. Globally we faced an economic depression on a
scale greater than that of the early 1930’s. The grim expectation was that apart
from the banks that collapsed, many other leading international companies would
go bankcrupt. Many thousands of families could lose their savings and pensions.

Thankfully the US authorities avoided the mistakes that were made in the
thirties depression i.e. lack of liquidity in financial markets and trade
protectionism. The US Federal Reserve stepped in, bailed out the US banks and
poured buckets of dollars into the global financial system thus averting a full
blown depression.

However the US economy has not shown robust growth and
job creation remains a major problem for President Obama. With this in mind the
US Central Bank has announced it will inject a further $600 billion (R4,1
trillion) into its economy to encourage growth and lower unemployment. This is
commonly referred to as ‘quantitative easing’ and aims to make borrowing cheaper
so more companies and people can access cash, spend it and thus stimulate the
economy.

Looking for yield much of this money has found its way into the
financial markets of developing countries. The JSE and our bond market have both
benefited.

This infusion of money has had the effect of strengthening
the currencies of many of these developing countries including our own. It is,
however, a doubled edged sword – imports and particularly oil are cheaper but
exports are more expensive.

In my opinion we should all be eternally
grateful to the US authorities for the way they handled the financial crisis. A
devastating depression would have been far more ghastly for emerging countries
to handle than strong currencies. Exporters will simply have to be more
productive and competitive until equilibrium returns to the markets. Equilibrium
will, I fear, only be achieved when the US market, the engine of world growth,
is back on its feet.

What happens when the US economy starts to improve?
Money will leave the emerging markets as fast as it came in! I have a concern
that this is something we have all lost sight of. I firmly believe that a large
percentage of the money that has been invested in real interest rates will be
withdrawn and invested into businesses in developed countries which tend to be
seen as safer havens than, for example, Russia or Brazil.

I am, however,
convinced that a certain percentage of the money that has flown into South
Africa over the past few months will remain here. Africa and particularly South
Africa have great potential for the future but I do not believe that any sane
fund managers will be happy with a high percentage of their investment funds
sitting permanently in emerging markets. When this happens we could well see a
correction in SA equity markets.

Job Creation Just as President
Obama has a problem with job creation so does South Africa. Jobs played an
important part in the recent medium term budget policy statement from Finance
Minister Pravin Gordham. He is genuinely one of the voices in government that
realises that politicians cannot create jobs – only the private sector can do
this and business decides where it wishes to operate.

In his policy
statement Gordham acknowledged the role that small and micro businesses play in
creating new jobs. He pointed out that small and micro businesses faced “an
onerous regulatory burden with limited access to finance.” He noted that 60% of
employees came from small and micro enterprises with less than 50 workers. In
his resolve to remove the red tape for starting these entities he said: “Rules
friendly to small businesses are needed across all regulations – tax, company
registrations, labour and zoning – to minimise compliance burdens and costs”.

Political leadership can however provide the enabling framework for
business of democracy, peace and stability. The countries with good ratings on
economic standards such as monetary and fiscal policy will make themselves
attractive to the rest of the world. Those who do not will simply be left
behind.

The latest World Bank Report places South Africa at 34th out of
183 countries for ‘Ease of doing Business’ and 67th for ‘Starting a Business’.
Therefore the sooner we see action on helping entrepreneurs create new
businesses the better for the job creation targets. It’s worth remembering that
all of today’s top companies on the JSE were once small entities.

Spire
Awards Our bond market has benefited from the wave of liquidity in world
markets. By the end of October the spot market volumes were 25% ahead of 2009
and the net investment by foreigners had increased by R70 billion, an all time
high.

Since the JSE took ownership of the Bond Exchange of South Africa
(BESA) a year ago it has been our intention to improve efficiencies by
introducing a more centralised trading system driven by technology. In early
November the JSE Spire Awards ceremony took place with the aim of recognising
excellence in the South African interest rate and bond markets. The awards
recognise a number of services offered by market participants ranging from the
quoting of prices, the structuring and financing of transactions through the
provision of research, debt origination and broking services.

I’m sure
with the JSE’s strong backing, the awards will grow in stature as it is the only
opportunity for bond traders to be rewarded for outstanding performance. My
congratulations to all the winners.

New Listings New listings are
the life blood of the JSE and as the year comes to an end it might be a good
idea to review our new listings to date. In an extremely volatile market we have
had 10 new listings with eight on the Main Board, one on our African Board and
one on AltX. A number on the Main Board have considerable market capitalisations
– these include Optimum Coal, Life Healthcare, Capital & Counties Properties
and Royal Bafokeng Platinum. The recent successful listing of Royal Bafokeng
Platinum was pleasing as the profits from this endeavour will be used for the
sustainable economic development of the Bafokeng people. Its parent, Royal
Bafokeng Holdings, provides a good example of how mining can be utilised for
empowering local communities with regard to education, housing and health care.
On a positive note we look forward to welcoming Clover onto the bourse in the
first quarter next year.

As this is my last column for the year I would
like to wish readers health and happiness over the festive season plus strong
markets in 2011.